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Local cities weathering the economic storm

October 26th, 2008 · No Comments

There isn’t a business or operation around that hasn’t got a story to tell about the impact of the current economic turbulence.

The Courier this week reported on the impacts that charities are seeing in donations. A friend who runs a bookstore told me last night that he’s had a couple of calls in the past weeks from people having to come up with cash to meet margin calls so they’re looking to sell their first editions of Orwell or Hemingway. (Somehow seems appropriate.)

And, of course, we’ve seen a veritable Niagara Falls of stories about the impact on consumer spending for luxury goods, vacations, cars, food, you name it. (Although, frankly, it can’t be that bad — I tried to get a reservation for three last night for dinner and was told by quite a few places that the only time slot available was 9:30 p.m. or never.)

I’d noticed there were stories in American papers talking about the havoc being wreaked on city budgets, like this one. So I called up Ken Bayne, Vancouver’s general manager of business planning, to ask whether Vancouver and other B.C. cities were likely to see the same kind of repercussions. And it appears not, for a reason that many city politicians might find ironic.

American cities sometimes have more access to other kinds of revenue that Canadian cities don’t. Canadian mayors have been lobbying hard for a decade to get access to more kinds of revenue, the kinds that provincial and federal governments have. But they’ve been unsuccessful. So they’re stuck with the same old sources: property taxes and user fees.

And, as it happens, those don’t change much with the economy. You can bet that your property taxes are not going to drop, even if the value of your house does this year. The property-tax system doesn’t work that way. If values go down, cities just increase the amount per $1,000 that properties have to pay. Even if businesses fold up, the landowner still pays the same tax on the empty property as it would if Tiffany’s were doing a booming trade there.

So cities will still get about the same amount of property taxes, which account for about two-thirds to three-quarters of most city budgets. And they’ll still get most of their user fees.

In places like Vancouver and Surrey, some of those user fees come from building permits and development, so those could be affected. But Bayne points out that, even with a 10-per-cent drop in building fees, that would only mean about $3 million from the approximately $33 million the city got last year in fees. In a budget that’s almost $1 billion, that is not an overwhelming amount.

It would be more problematic if a downturn lasted several years, Bayne said. That would start to have a cumulative impact.

Another way that Vancouver, at least, is buffered from the economic storm is that it has the capacity to do some internal financing to cover the costs of big projects. That means that, even though it’s asking voters to approve a pretty hefty package of capital spending this fall, the city doesn’t necessarily have to go out and try to borrow money in this crazy market. Bayne said that the agency that normally issues city bonds can’t even tell him right now what kind of price (i.e. interest rate) the city would face if it tried to issue bonds to finance its long-term debt right now. But that’s okay, because Vancouver can dip into its reserves to get started on the many capital projects (including Trout Lake community centre, if approved).

Again, Bayne said, if the instability continues for a long period, that could end up having an impact. But for now, there are no doomsday scenarios facing the councillors who will have to decide on the city’s 2009 budget as their first task after getting elected. All they’ll have to deal with is that current 10-per-cent increase that is the result of a lot of new programs and police being added in the last while, along with the 3.5-per-cent salary increases that are coming due for all 6,000 employees.

So no need to worry that the streets will go uncleaned or the pools will be shut down. As everyone keeps telling us, Canada is a relative pool of security in a topsy-turvy world. We must try not to be too smug.

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